HOA Board members wear many hats; owners rely on them to monitor expenses, select the perfect property managers and negotiate landscaping contracts; some boards even weigh in on neighborhood paint pallets. As volunteers and leaders in their communities, most board members have a lot on their plate.
Yet, even the most qualified board members may not precisely tell you where to turn for your HOA loan; when it is time to work on a complex financing transaction, board members should seek professional guidance. As members of the board begin thinking about financing options, it is a good idea to turn to an HOA loan specialist.
An HOA loan expert can help navigate the loan process and obtain the most suitable structure. Unlike applying for a car loan or mortgage, the intricacies of getting the appropriate HOA loan can be very confusing. Before applying for a loan, there are some best practices to consider.
There are a few initial steps to take before a board decides to move forward with any financing request. The board should contact the HOA’s legal counsel. They should assess whether the board has the authority to enter into a loan agreement. Some documents allow a board to enter into a loan without a vote. In other situations, boards may need a majority of the members to vote for approval before a loan can close. Still, others only allow for loans in emergencies. It’s best to be armed with this information sooner rather than later in the process.
Strategic Financing Plan
An experienced loan advisor can help the board or finance committee begin to sketch out high-level options. The board should prioritize the scope of projects along with various financing scenarios. Ideally, the advisor and the board can agree on realistic financing designs that address the projects with the highest priority levels.
Where To Get Your HOA Loan: Tactical Financing Plan
Another best practice is to assemble the loan documents that lenders will require. It helps to have these documents organized into an easily understood loan package. Additionally, a request for proposal (RFP) is often a good idea. A well-written RFP will help lenders quickly understand how the borrowed funds will be used and (more importantly) how the loan is going to be repaid. Once a high-level plan has been mapped, it’s the right time to reach out to lenders for Term Sheets.
Most lenders will prepare a Term Sheet or Indication of Interest within a few weeks of receiving the request. These documents will lay out the terms of the proposed loan. These documents are not to be mistaken for Commitment Letters which are typically issued after an application has gone through their underwriting process.
Communication for your HOA loan
The next step is to inform members of the board’s intent to borrow funds. A public forum is the best place for this discussion. At this time, the board should provide a high-level loan plan to its members. The board should have a written summary. The presentation should contain a few vital pieces of information: ranging from the thought process around the decision to borrow, how the funds are to be used, the proposed terms of the loan, and the repayment plan.
When meeting with members about a condominium or homeowner association loan, the board should have an outside advisor(s) present to answer questions. To avoid potential issues, members should formally vote to approve the loan. This step is not just a best practice; it may be required in the condominium or HOA bylaws, especially if the loan repayment will necessitate an increase in dues.
Too often, boards focus solely on an interest rate without regard to loan structure and credit terms. Rarely are loan proposals identical so conducting a careful review is always a good idea.
Success-based fee structure:
At Arch Capital Solutions, we believe our results speak for themselves. We only invoice our clients after successfully closing their loans. We never charge an hourly or retainer fee, and we are 100% there to help and support the association through the entire loan process.
Arch Capital Solutions specializes in arranging loans for homeowners and condominium associations throughout the country.
Contact us today and allow us to help arrange funding for your association!